Monday, October 24, 2011

Herman Cain's 999 Plan, Part 4: Turning the math up to "eleven"

Since I wrote my first article, I've had some questions and concerns posed to me about my example. I like questions and concerns! It gives me a reason to do more writing!

My friend John wrote to me:

Another problem lies in the sales tax structures of the various states. An erroneous assumption in your calculations is that Georgia does not charge state sales tax on groceries. Only local sales taxes are charged on groceries and I believe pharmaceuticals.

Florida has no sales tax charged whatsoever on groceries or prescription drugs. Varying state tax structures, to me, infinitely complicate the whole picture of whether 999 is good or bad when integrated into the existing taxes that will not go away.

Here's the good news: Unlike Obamacare, we don't have to pass this bill to know what's in it. We can research, we can calculate, and we can prove whether this undertaking is really complicated beyond measure.

My first task will be to research existing sales tax structures in both Georgia and Florida. I will take a real receipt from my own real grocery shopping, with goods taxed at two rates, and replicate the sales tax calculation in a spreadsheet. Finally, I will use the spreadsheet to show a post-9-9-9 cash register transaction.

My "pass/fail" standard for the test is this: I am assuming that grocery stores can handle the pre-9-9-9 register transaction. The post-9-9-9 register transaction must have a level of complication no worse than the pre-9-9-9 transaction.

My grocery store receipt

Where do I start? With Georgia and Florida sales taxes. From the web, from a round of shopping, and from talking with my uncle in Florida, I have learned:

Georgia has a 4% state sales tax which applies to all non-grocery, non-pharmaceutic items. Individual jurisdictions may add sales taxes which apply to everything, including food and medicine. In my area, I've got a 2% "everything" sales tax, which results in a 6% "regular" tax rate and a 2% "food and medicines" tax rate. This is not considering any taxes on alcohol, tobacco, or other "specialty" goods, but expanding from 2 tax rates to 3 or more should be a trivial task, mathematically.

Grocery stores are generally the only places which will have to deal with different multiple sales tax rates today. Grocery store registers are tied to databases which provide information on each bar code scanned, including price, item name, and tax category. The tax category is visible on the receipt, in the far-right column: Each item has a category of "B", meaning the 2% tax rate should be applied, or "T", meaning the full 6% tax rate.

Florida has more tax categories, but the math is the same. The method of calculating tax does not change. Only the percentages are different.

The math test I performed can be viewed in this Google Docs spreadsheet. If you follow the link and check it out, here's what you'll see:

In columns A and B, I've listed all of the items on my receipt, with the receipt's tax category. "B" indicates a grocery item, "T" indicates a non-grocery item.

The "embedded" tax on items (which comes from the amount that companies have to charge in order to pay their federal taxes) will drop, regardless of the sales tax rate of each item.

After the 9-9-9 tax is implemented, the variables have changed (new subtotal, new point-of-sale tax rate), but the formulas are the same.

If you're still a skeptic, I'd encourage you to copy the spreadsheet and play with the numbers yourself. Adding and changing tax rates is as easy as copy-and-paste.

Are state sales taxes a mess? They can be, depending on your state, county, and city. Does 9-9-9 fix that? No, you'll need to take that up with your own state legislatures. The only thing I can demonstrate here is that 9-9-9 doesn't make the sales tax problem for any state or local jurisdiction more complicated than it is already. If a grocery store or other retailer can handle the existing tax laws, this is a change for no worse, and quite possibly for the better.